TMI Blog2018 (1) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... (2013 (9) TMI 156 - ITAT KOLKATA)and has directed the AO to exclude investments which did not yield tax free income while working out the average value of investment. We find no grounds to interfere with the order of CIT(A). No merits in the ground raised by the revenue. - ITA No.1654/Kol/2016 - - - Dated:- 10-1-2018 - Shri N.V.Vasudevan, JM And Shri Waseem Ahmed, AM For The Appellant : Shri Arindam Bhattacharjee, Addl.CIT For The Respondent : Shri Subash Agarwal, Advocate ORDER PER N.V.VASUDEVAN, JM: This is an appeal by the Revenue against the order dated 23.05.2016 of C.I.T- (A)-20, Kolkata relating to A.Y.2013-14. 2. Ground no.1 raised by the revenue reads as follows :- ( 1) In the facts and circumstances of the case, Ld.CIT(A) is erred in deleting the disallowances as the overloading charges is nothing but a penalty as per provision of section 73 of the Indian Railway Act, 1989. 3. The Assessee is a company. It is engaged in the business of mining. In the course of assessment proceedings u/s 143(3) of the Income Tax Act, 1961 (Act) the AO noticed that under the head Freight and Transporting expenses there were certain expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... punitive charges for such overloading as additional freight which is only compensatory in nature. The Assessee reiterated that overloading charges were not in the nature of punishment for violation or infraction of law but by way of compensation for permitting to overload the goods beyond the permissible limit; moreover, there is no provision for criminal action or prosecution or confiscation of goods for overloading. It was argued that in fact overloading was very common which was permitted by the railways on additional freight termed as punitive charges. 5. The Assessee also submitted that overloading of wagons was not a deliberate act on the part of the assessee but was basically due to the lack of infrastructural facility at the loading station. In case weighing Bridge existed at the loading station, then overloading of wagons could be easily avoided. The Assessee also relied on Notification dated the 23rd December 2005 (to be published in Gazette of India, Part- II, Section 3(i) of the Gazette of India) issued by the Ministry of Railways wherein punitive charges for overloading has been defined in para 3 as : Where the commodities are overloaded in a 8-wheeled wagon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of additional freight for transporting goods beyond the permissible carrying capacity which cannot be categorised as an expenditure incurred for any purpose which is an office or infringement of law. Following the aforesaid decision the CIT(A) took the view that payment in question was compensatory in nature and not penal and therefore the provision to Explanation to Section 37(1) of the Act will not be applicable. In the decision relied upon by CIT(A) there is also a discussion about the notification issued by the railway ministry of overloading charges and also the decision of the Hon ble Supreme Court in the case of Prakash Cotton Mills Pvt. Ltd. 201 ITR 684 (SC) and the decision of the Hon ble Punjab and Haryana High Court in the case of Hero Cycles Ltd. 178 Taxmann 484 (P H). Reference was also made to the decision of ITAT Nagpur bench in the case of Western Coalfields Ltd (2009) 124 TTJ (Nag) 659. In the decision last cited on the same nature of expenses namely compensatory charges to the railways for over loading of the wagon, it was held to be not falling within the ambit of Explanation to section 37(1) of the Act. 10. Aggrieved by the order of CIT(A) the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Karnataka High Court held that the compounding fee was paid for the purpose of compounding a criminal offence and was therefore hit by the provision of Explanation to section 37(1) of the Act. Reference was also made to the decision of the Hon ble Supreme Court in the case of Haji Aziz Abdul Brothers vs CIT 41 ITR 350 (SC) . In the aforesaid case fine paid to customs authorities for release of confiscated goods imported contrary to law was held to be not allowable as deduction u/s 37(1) of the Act. 13. The ld. Counsel for the assessee placed reliance on the decision of the ITAT, Kolkata Bench in the case of DCIT vs M/s. Feegrade Company Pvt. Ltd. In IT(SS) A. Nos. 36 to 38/Kol/2015 dated 05.04.2017 wherein this Tribunal took the view that railway punitive charges were not hit by Explanation to section 37(1) of the Act. 14. We have considered the rival submissions. This tribunal in the case of Feegrade Company Pvt. Ltd on an identical issue has taken the following view :- 8. At the time of hearing of the appeal it was fairly accepted by the parties that the issue raised by the revenue in this appeal is squarely covered in favour of the assessee by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges', the charges levied by the Indian Railways for carrying the goods in its rake .are permitted by Railway authorities itself and the punitive charges are computed as 2 times or 3 times of the freight rates. The punitive charges levied by Railways, in accordance with the notification of Ministry of Railways dated 23.12.2005, for carrying goods in its rakes are not 'for any purpose which is an offense or which is prohibited by law'. As a matter of fact, the Indian Railways itself permits carrying weight load beyond the permissible carrying capacity subject to payment of higher rate of freight by 2 times or 3 times. Though the words are 'punitive charges', they are payment which are neither an offense nor is prohibited by the law rather the payment is in accordance with the law as provided in the notification of Ministry of Railways dated 23.12.2005. It is, therefore, held that Explanation to Section 37 is not applicable and the payment of ₹ 1,01,85, 788/- is allowable. Hence, the addition is deleted and Ground No. 4 is allowed. 16. As far as the decision of the Hon ble Delhi High Court in the case of Time Incorporated (supra) cited by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As far as disallowance under clause (ii) of Rule 8D is concerned, the assessee pointed out that no disallowance on account of interest expenditure is warranted as the assessee was having huge own funds in the form of share capital reserves to the extent of ₹ 1011 crores as on 31.03.2013 whereas total investments were only ₹ 4.49 crores. Even if it is presumed that investments were made out of mixed funds, it is a settled law that if mixed funds are available, it should be presumed that investment in shares is made out of own funds. The assessee relied on the decision of the Hon ble Bombay HC in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 in regard to allowance of interest u/s 36(i)(iii) and in the case of CIT vs. HDFC Bank Ltd. (ITA 330 of 2012). As per the decision in the case of HDFC Bank Ltd (supra) , if share capital and reserves are available along with borrowed capital, a presumption can be made that investment in shares have been made from own funds. Relevant extract of the decision was as under: 'In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Britannia Industries Ltd 280 ITR 525 (Cal). In view of the above, the addition of ₹ 205685/ -made under rule 8D(2)(ii) is deleted. The assessee has contended before me that all investments have not yielded dividend income during the year and therefore no disallowance could lawfully be made under rule 8D(2)(iii) for all investments in view of the decision of the jurisdictional ITAT in the case of REI Agro Ltd (ITA No.1331/Kol/2011). The AO may verify the contentions of the assessee in this regard. The AO shall then re-compute the disallowance under rule 8D(2)(iii) in view of the decision of the jurisdictional ITAT in the case of REI Agro Ltd (supra) by considering only those investments which yielded tax free dividend income during the year. Ground no 4 is thus, partly allowed. 22. Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal. The ld. DR placed reliance on the order of the AO. The ld. Counsel for the assessee placed reliance on the order of CIT(A). 23. After considering the rival submissions we are of the view that in the light of the uncontroverted factual details with regard to availability of own f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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